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The UK pharmacy market in review


The UK pharmacy market in review

Despite interest rate rises and wider economic pressures, many banks have maintained their appetite for lending to prospective pharmacy purchasers, writes Christie & Co’s head of pharmacy, Tony Evans

We recently launched our ‘Pharmacy Market Review 2023’ report , which analyses a range of topics relating to the UK pharmacy business market and highlights the opportunities it lends to independent operators and new market entrants. 

As of March 2023, the total number of pharmacies in the UK was 14,328. Between 2022 and 2023, corporate operators saw the most significant decline in pharmacy numbers, with a net loss of 200 stores, while medium-sized pharmacy groups saw a decline of 68 and independently run pharmacies gained 167 pharmacies.

The sector’s composition is now weighted firmly in favour of regional multiples and independent contractors, whilst companies operating more than 300 pharmacies have reduced to circa 35 per cent of the overall market. 

In terms of buyer profiles, in the first six months of this year, the spread of buyer types was far more even than we have seen in years, with a third of all sales completed to first-time buyers.

Operators continue to face significant operational challenges, with little respite or ability to offset costs within the current contractual funding framework. 

Whilst gross margin performance has stayed more or less in line with what we recorded in our 2022 report, recently published accounts show downward pressure on margins by up to two percentage points. This is likely to be felt even harder by those pharmacies that have not developed income through wider services provision.

Over this time, contractors faced continued challenges of drug shortages not only impacting supply but also resulting in a significant rise in pricing. As a result, the sector saw stark increases in the number of drugs for which price concessions are granted.

The sector continues to face pressures as pharmacists and qualified staff are lured away to GP surgery and PCN roles under the ongoing Additional Roles Reimbursement Scheme. Data supplied by Locate a Locum shows that whilst respite in locum costs was aired by some contractors in the first half of 2023, workforce pressures are driving locum rate increases.

Between 2022 and 2023, rates across the UK increased by an average of 3.5 per cent. The largest decrease was in Inverness, where the hourly rate dropped by 14.8 per cent to £50.91. In contrast, the rate in Cardiff increased the most, by 30.3 per cent to £42.59. Dumfries has the highest hourly locum rate in the whole of the UK, at £51.80, and Belfast has the lowest at £27.38.

According to NHSBSA data, in the 12 months to March 2023, dispensing activity in England rose by 4 per cent, with the average volume dispensed by community pharmacies rising to 8,078 items per month. All types of settings saw a rise in dispensing volumes, with standard settings taking the lead with an increase of 5 per cent.

From a volume perspective, however, integrated settings continued to lead the way with an average volume of 10,030, followed by health centre adjacent settings returning 9,354, and standard settings averaging 7,529 items. By operator type, independent contractors saw the highest volume increases, with independent settings now averaging 8,949 items per month. 

Dispensing volumes for seven prominent online platforms – Superdrug, Hey Pharmacy, Chemist4U, Boots UK, Lloyds Direct, Well and Pharmacy2U – grew 12 per cent, with just over 32.5 million items dispensed in the 12 months to March 2023. This represents 2.6 per cent of all items dispensed in the sector. Of this number, Pharmacy2U continues to dominate, dispensing just short of 1.6m items in March 2023.

More recently, the announcement of Pharmacy2U’s acquisition of the second largest online pharmacy, LloydsDirect, will only cement its dominance in this niche area of the market. Data available for July 2023 would suggest that combined, the two dispensed circa 2.67m items – roughly 2.8 per cent of the overall items dispensed in England.

From January to June 2023, asset finance covered one-third of all finance provided by Christie Finance, with continued strong demand to support the installation of automated dispensing robotics.

Activity suggests that many community pharmacies across the UK and Ireland are taking advantage of automation to free up the space, time and resources needed to become more customer-facing, handle additional services and grow their businesses.

Outlook for 2023

Looking ahead, 2024 will be a big year for the sector in England, as a new funding package to replace the 2019 five-year deal should be delivered by the sector’s negotiators. The success of such negotiations will no doubt have a huge bearing on the future of pharmacy.

It seems inconceivable that the Government can continue to ignore the pressure the sector is facing in its delivery of what must be regarded as one of the most important services to impact the country’s health. 

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